Financial matters: why you can’t afford to be illiterate

In a recent interview with a come-from-away I asked, “What are the three most important issues facing Atlantic Canada?” I was startled when “financial literacy” was included as one of the responses. Apart from it being a relatively obtuse term, I had never considered it as something which should matter to the public at large. Then, the more I thought about it, the more I realized just how important it is for everyone to embrace the subject as meaningful to them.

Nova Scotia’s provincial debt just recently blew through the $14-billion mark. Over the past decade or so, Newfoundland and Labrador’s budget has gone from less than $4 billion a year to $8.5 billion. This is crazy – simply, absolutely crazy. There is only a remote chance Nova Scotia could or will ever repay its debt (which is something entirely different from servicing it). Meanwhile, the population continues to shrink in both Nova Scotia and Newfoundland and Labrador. When, not if, interest rates climb back to more normal levels, the impact will be severe. Just a two per cent increase would represent more than the entire annual budget for roads in Nova Scotia.

Here’s my point: John Q. Public needs to grasp the significance of fiscal discipline. To some extent, that is happening. The region’s employment insurance (E.I.) recipients have long valued those benefits not just as a right, but as a way of life. Seasonal employment plus E.I. used to equal a satisfactory lifestyle. No longer. Rural Atlantic Canada has emptied out as folks chase more lucrative opportunity in Alberta and beyond, with no E.I. component. In other words, such recipients have self-converted from being dependent on the system to contributing to the system, and they’re far better off as a result.

Debt and deficit spending in the hands of government is the equivalent of the E.I. recipient helping themselves to the savings or taxes of someone else to support their lifestyle.

Greece has debt it not only can never repay but debt it cannot service without borrowing more money to do so. Its funders, the International Monetary Fund (I.M.F.), the European Central Bank (E.C.B.) and other members of the European Economic Community (E.E.C.) have imposed very strict conditions on such further lending – which has had devastating consequences on the Greek economy. Government jobs, pension benefits and all sorts of public services have been slashed, in some cases dramatically. This is no fun for ordinary Greek citizens, particularly those least able to move or find alternate employment or ways to supplement their income.

If they had had any degree of financial literacy, the Greek people (and others) should have seen this coming. How long did they think Germans would finance such financial prof ligacy by working to a retirement age of 65, now extended to 67, so as to allow Greeks to retire in some cases at 50 or younger? How long did the people of Greece think their government could borrow money it had zero prospect of ever repaying? How long did Greeks think they could engage in the national pastime of avoiding income taxes while expecting greater levels of government services? You would have thought it was all too obvious that promises of services and support financed by debt and the taxes of a future generation could simply not be kept.

The market creates wealth. The world’s wealthiest countries and people and those which are its fastestgrowing understand how this works. We need to ask ourselves very basic questions. It would be great to have a sophisticated hospital in every meaningful population centre. It would be wonderful if we could twin more roads. Both would save lives. But what can we afford, what level of taxes will we endure to support what level of services?

Am I a dependent or a contributor? In which system am I better off? Why has Detroit had to declare bankruptcy? Why is Europe not growing? Why are so many learned economists deeply worried by the promises resident in the so-called entitlement programs in the U.S.? Why is Asia growing so quickly?

These are questions or issues which will definitely impact you, and your children. Think about them.

John Risley
About John Risley

John Risley, president of Clearwater Fine Foods Inc., regularly engages in policy debate as a member of the World Presidents' Organization, the Chief Executives Organization and as a director on the Board of the Canadian Council of Chief Executives.

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